Survey by Callan Associates Tracks Changing DC Practices
SAN FRANCISCO, CA, June 13, 2005 -- Shrinking investment options and more advice are what sponsors of America's defined contributions plans believe best serve their employees.
Callan Associates' recently released tri-annual survey of DC plan sponsors revealed that the number of investment choices in DC plans now averages 16, down from 20 in 2001, when the survey was last conducted. In 1998, only an average of 11 investment choices were offered.
"In the bull market, a philosophy of 'more is better' prevailed," explained Anna Oakley, Vice President, DC Practice Leader. "As the market moderated, plans found that too many choices could overwhelm participants and lead to bad investment decisions."
Asset allocation or lifecycle funds remain an important plan offering, with 74% of respondents including them in their menus of choices. Risk-based lifecycle funds still represent the majority, but time-based funds have risen 42% of the mix this year versus 22% in 2001. According to Callan, the institutional investment consulting firm, plan sponsors have noted that time-based products are easier to explain and easier for participants to understand.
Participant Advice Increasing But Needs More Monitoring
One-third of Callan's survey respondents are offering advisory services to participants, with another third indicating that adding an advice component is a priority for 2005. Of the respondents currently providing advice, about 60% rely on an independent web-based provider, while only 21% use their record keeper's proprietary model for these services. In 2001, of the DC plan providers offering advice, 43% used their record keeper.
Callan views the significant shift towards using outside, third-party providers for participant-level advice as a positive trend, but is concerned about evaluation policies. They note that only 36% of plan sponsors have procedures in place to monitor these advice providers on an ongoing basis.
Stronger Oversight
Virtually every DC plan sponsor surveyed by Callan has had a fee discussion and/or reduction with their current provider within the past three years, with well more than half conducting this review within the past year. One-third of survey respondents indicated they would be willing to incur an annual per-participant record keeping fee to minimize the impact of investment management fees on plan assets.
Survey results show that the number of plans maintaining a documented investment policy statement increased to 86%, from 78% in 2001. Three-quarters of respondents conduct quarterly meetings to address oversight responsibilities including investment policy and 404(c) compliance.
Corporate Treasury staff, which has typically been responsible for a company's defined benefit (DB) plan, are now more commonly sharing the duties of DC plan oversight once held almost exclusively by Human Resources (HR). Investment oversight of DC plans at three-quarters (76%) of responding firms falls to a committee including staff from both HR and Treasury/Finance, compared with only 59% in 2001 and 51% in 1998. Administrative oversight usually falls to joint committees as well, with 65% of respondents reporting this type of arrangement.
"Joint oversight is generally good for participants," said Ms. Oakley. "The Human Resources people will always be the channel for participant feedback, while the Treasury staff brings an institutional-investor approach to the asset management issues."
About the Survey
Callan conducted its Survey of DC Plan Sponsors in late 2004 and drew responses from 95 plan sponsors with more than $100 billion in total assets and 1.1 million participants. More than one-third of the respondents qualify as large plans with assets greater than $500 million. Overall plan participation among the firms surveyed registered at 82% with an average participant balance of $105,000.
About Callan Associates
Callan Associates, founded in 1968, is an institutional investment consulting firm. With headquarters in San Francisco, Callan has regional offices in Atlanta, Chicago, Denver and Morristown, New Jersey.
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